The Future of Corporate Governance

How Very Nice Good Governance Rules and Beautiful Code of Ethics Create a Stable Basis For More Corruption

Hubert Rampersad, Ph.D.

Good people do not need laws to tell them to act responsibly, while bad people will find a way around the laws” – Plato

 It’s about time to design a better world. A world that is characterized by personal integrity, good governance, no racism, sustainable innovation, empathetic leadership, a changed role of HR, respect for nature, and a sustainable culture of diversity, inclusion, and belonging.  In my article HOW TO DESIGN A BETTER WORLD”, I discussed how to design this new normal sustainably.

Traditional shortsighted management approaches, such as corporate governance, taught at leading business schools and universities are outdated and are causing massive damages in society. They lack sustainability because they are not authentic and not holistic, which means that they are not suitable for the new normal. So please cut the crap! There is no room for bullshit in the new normal. The new normal requires holistic thinking, authenticity, personal integrity, and empathy, thus SUSTAINABILITY! I refer to my article “The Future of Higher Management Education”.  

Management Theories

Outdated management theories, poor ethical leadership, lack of personal integrity, mismanagement, fraud, corruption, and violation of corporate governance rules are the main contributors towards bankruptcy and financial failures in many organizations. Most of these organizations have comprehensive corporate governance codes in place, which apparently are not working at all. They made things worse and created a stable basis for more corruption. There is no room for racism, mismanagement, fraud, and corruption in the new normal. harvard 4Read also my article Why Harvard University is So Corrupt, White, and Outdated”. 

Some other rare examples of corporate governance not working

Here are some recent rare examples of corporate governance not working the way it should:

  • Massive corruption at Wells Fargo, which led to the resignation of its chief executive, John G. Stumpf. Wells Fargo implemented one of the best corporate programs in America, advised by Harvard Law School professors.
  • Corruption at Apollo Global Settles Securities Case as S.E.C. Issues $53 Million Fine. Apollo misled its investors about two different issues and separately failed to supervise a senior executive suspected of misconduct. Apollo implemented a great corporate program by one of the BIG Four Accounting firms.
  • Corruption at Tesco that shocked the markets with an announcement acknowledging their profits for the previous six months were at least £250 million pounds lower than they announced a month ago. Tesco implemented a complete corporate program by one of the BIG Four Accounting firms.

Traditional Corporate Governance Programs Cause More Corruption and are not Suitable for the New Normal

Having great corporate governance programs in place but not complying to these programs has become a normal practice globally. Traditional approaches to corporate governance are extremely formal, bureaucratic, cosmetic, non-holistic and non-authentic, and therefore provide no protection from potentially catastrophic ethical failures. Most corporate governance programs made things worse, create a stable basis for more corruption and are doomed to fail. We need a sustainable and innovative solution to this global epidemic urgently. I picked up where others left off  by launching an innovative and sustainable methodology for creating a culture of good people, in which high ethical values are aligned with their corporate governance rules, regulations and guidelines and embedded in their mind. It 9783319031125is based on my new book “Authentic Governance; Aligning Personal Governance with Corporate Governance“.  Two main endorsements for this book:

1) “Authentic Governance is a systematic, integrated, pragmatic, and innovative approach to corporate governance. By expanding traditional corporate governance concepts and integrating personal integrity and ethical leadership into one overall authentic governance framework, Dr. Hubert Rampersad gives us a new blueprint for sustainable corporate governance in which formal corporate regulations and personal values mutually reinforce each other. By unifying corporate ethics with individual ethics he has written an outstanding synthesis, which is addressed to the corporate challenges of managing in the 21st century”.Saudi

2) “This book makes a most useful contribution to the never ending challenge of protection from potentially catastrophic ethical failures. It serves as a practical guide and a tool kit for executives who aspire to realize ethical corporate excellence”.

Authentic Governance starts with value-based leadership development, embedding personal values in the mind of the Chairmen, Presidents, CEOs, CFOs, managers and all employees, and guiding them to sincerely reflect on these values. This is about decency video logo 1and personal integrity. Authentic Governance is one of the first tangible and measurable means to create a way of life within organizations, characterized by trust, credibility, transparency, personal responsibility, personal integrity, and a high performance ethical business culture. This will have a positive impact throughout society’. I refer to my related Youtube video.

The New Normal Requires Personal Integrity and Empathy

How to Develop Personal Integrity & Empathy SustainablyCorporate governance sucks because corporates neglect personal integrity. Read also my article “Empathic Leadership in the New Normal. Let me illustrate this with some quotes:

“In looking for people to hire, you look for three qualities: integrity, intelligence, and energy. If you do not have the first, the other two will kill you. If you hire somebody without personal integrity, you really want them to be dumb and lazy.”–Warren Buffett

“There is such a need for a complete rebirth of trust in our political and business leaders. Somewhere along the line they lost their authenticity, humility and integrity, and in doing so they have lost their empathy, and their inner alignment“– Hubert Rampersad.

Sam DiPiazmer former CEO of PricewaterhouseCoopers, said: “It has become dramatically clear that the foundation of corporate integrity is personal integrity.”

Honesty and personal integrity are critical components in today’s business. They are the most fundamental character traits of leaders and professionals and crucial ingredients in creating empathy. Remember what Spencer Johnson said: “Personal integrity is telling myself the truth. Honesty is telling the truth to other people”.

50 Tips for Leading With EmpathyEmpathy means awareness of the emotions of others; the emotional connection with others. Empathy without personal personal integrity is BS! I refer to my article “50 Tips for Leading With Personal Integrity and Empathy“.

Failures

Many governments and large companies everywhere are currently very keen to revamp, develop, and implement a corporate governance code to address the above mentioned shortcomings. Unfortunately, all these codes are cosmetic and do not provide adequate protection. The table below shows a summary of some other resonant cases of failure of corporate governance (Alexandru, 2012).

tabel

Behind all these scandals are a number of common factors, including:

  • Poor ethical leadership and lack of personal integrity
  • Mismanagement and management incompetence
  • Fraud, corruption, and violation of corporate governance code of ethics
  • Non-observance of the procedures stipulated in internal regulations
  • Insufficient attention paid to risk management
  • Inconsistent distribution of duties and responsibilities
  • Inefficiency of internal audit
  • Ignorance showed to the signals provided by external audit
  • Influencing the external auditors to express an audit opinion inconsistent with reality.

All the above mentioned organizations have comprehensive corporate governance codes in place, implemented by some left brain accountancy firms and large law firms and advised by top Harvard Law School professors, which apparently are not working at all. They made things worse and created a stable basis for more corruption.

Unethical behavior of top-executives, poor ethical leadership, lack of personal integrity, mismanagement, fraud, corruption, and violating corporate governance codes are the main contributors of these scandals. The human element represented by the directors and employees is the major cause of the mentioned failures. Especially unethical behavior of leaders is the main cause of bankruptcy and financial failures. Remember what Alan Greenspan, Former Chairman of the Board of Governors of the US Federal Reserve System, said: “Our market system depends critically on trust—trust in the world of our colleagues and trust in the world of those with whom we do business…. I am saying that the state of corporate governance to a very large extent reflects the character of the CEO.”

Due to the above mentioned shortcomings most companies’ approaches to corporate governance are extremely formal, bureaucratic, cosmetic, woolly, non-holistic and no-authentic, and therefore fail to address above mentioned shortcomings. Their implementations of corporate governance provide no protection from potentially catastrophic ethical failures. We need a sustainable and innovative solution to this global epidemic urgently, which I will present in the next section of this article.

A sustainable innovative solution

It is time that we become aware that corporate governance cannot be controlled effectively with formal and exhaustive rules, regulations, guidelines, and procedures only. It’s about decency and personal integrity and this must be cultivated from within. Personal integrity has no need of rules. It must be a way of life.
 
Remember what Plato said in 340 BC: Good people do not need laws to tell them to act responsibly, while bad people will find a way around the laws”.  Most corporate governance programs make things worse, create a stable basis for more corruption and are doomed to fail. Why don’t we learn from Plato and focus on creating a culture of good people, in which personal values are aligned with the laws and embedded in the mind of the people, instead of focusing on  laws (corporate governance) only? I picked up where others left off  by launching an innovative methodology for creating a culture of good Chairmen, Presidents, CEOs, CFOs, managers and employees, in which high ethical values are aligned with their corporate governance rules, regulations and guidelines and embedded in their mind. 

As demonstrated by Enron and others, traditional corporate governance codes (corporate laws) provide no protection from potentially catastrophic ethical failures. Company integrity must always start with personal integrity. It must be an informal learning process and a way of life, based on alignment with yourself and alignment with your company. This ethical process must be promoted and communicated within the whole company to all stakeholders consistently. In this way ethical behavior will become a routine in the whole organization, and leaders and employees will gain more understanding about their responsibility with regard to ethical behavior. They will understand that it is their responsibility to act ethically, on duty as well as off duty. This is a more sustainable, comprehensive and holistic approach to ethics and social responsibility.

Against this background, I propose an organic and holistic approach to corporate governance, by integrating personal values and integrity into one overall authentic governance framework, in which formal corporate regulations and personal values mutually reinforce each other. This theory has been borne out through my leadership experiences in the corporate world globally in the past 30 years.

Sustainable Authentic Governance Model
In this section, I introduce a more sustainable, authentic and holistic approach to corporate governance, which I call authentic governance. I have defined authentic governance in holistic humanized terms, namely: the systematic process of continuous, gradual and routine improvement, steering, and learning, that lead to sustainable high performance and ethical excellence. I made a distinction between authentic personal governance and authentic corporate governance, which I will explain here in detail. So, authentic governance is a continuous voyage of discovery, involving continuous, gradual and routine improvement, steering, and learning. It is about a journey towards a happier and more successful life for individuals and ethical corporate excellence.

By redefining and governing themselves effectively, leaders and employees will gain more understanding about their responsibility regarding ethical behavior, and they will understand that it is their responsibility to act ethically, on duty as well as off duty. Figure 1 shows the related authentic governance model, which provides an excellent framework and roadmap to develop, implement, and cultivate personal governance and corporate governance in a systematic and sustainable way. This new governance blueprint is an inside-out approach and focuses mainly on the human side of good governance. It places more emphasis on understanding yourself and the needs of others, meet those needs while staying true to your personal and corporate values, improve yourself and your personal integrity continuously, making ethics a way of life and a continuous learning process, and align these with formal corporate regulations, procedures and guidelines, instead of focusing on exhaustive formal corporate regulations, procedures and guidelines only.
fig 2.1-
Figure 1: Authentic Governance Model (© Hubert Rampersad)

This authentic governance model consists of the following four phases (see Figure 1), which are the building blocks of sustainable corporate governance:

1. Authentic Personal Governance:

a) Personal ambition; this phase involves a soul searching process based on thought, introspection, and self-reflection, supported by a breathing and silence exercise. Question which you can ask yourself are: Who am I, What do I stand for? What makes me more ethical? What do I live for? Why do I want to lead? and What’s the purpose of my leadership? If the honest answers on the last four questions are power, prestige, and money, you may be at risk for your company. The result of this phase is the formulation of your personal mission, vision and values. On the basis of insights acquired through this process, you develop self-awareness and self-regulation, which are the foundation of trustworthiness, integrity, and openness to learn.

b) Personal Balanced Scorecard (PBS) / Personal Innovation Strategy; personal ambition has no value unless you take action to make it a reality. Therefore the emphasis in this stage is developing an integrated and well balanced action plan based on your Personal Innovation Strategypersonal ambition to develop personal integrity. It’s about translating your personal ambition into action. The new normal also requires a better you and stop the racist in you. In my new article “Redesigning Your Life to Stop the Racist in You” I show you how to redesign yourself to stop the racist in you and how to become a better human being, based on your personal innovation strategy. Remember: A better world starts with a better you. 

c) Personal governance; the next step is to implement, maintain, and cultivate your ambition and PBS to govern yourself effectively and to become a better human being. This entails personal governance; the systematic process of continuous, gradual and routine personal improvement, steering, and learning. Your PBS needs constant updating to reflect the new challenges you take, the lessons you have learned, and the growth of yourself.

2. Alignment with yourself; corporate governance will be cosmetic if personal integrity is not a way of life in your organization and if you focus mainly on ethical procedures, formal regulations, and guidelines. Therefore it’s needed to align your personal ambition with your behavior and your way of acting (see Figure 2). So you need to commit yourself to live and act according to your personal ambition and to keep promises that you make to yourself. Personal governance built on the person’s true character is sustainable and strong. You should reflect your true self and must adhere to a moral and behavioral code set down by your personal ambition. This means that who you really are, what you care about, and your passions should come out in your personal ambition, and you should act and behave accordingly (you should be yourself) to build trust. This inner alignment is an important step towards lasting personal growth and reinforcing integrity, honesty, trustworthiness, credibility, transparency, and personal charisma. People with this perspective on life value others’ lives and create a stable basis for others to feel they are credible, truthful, and trustworthy.
fig 6.2
Figure 2: Aligning Personal Ambition with Personal Behavior and Actions

These first two stages in the authentic governance model focus on personal leadership development by cultivating your inner compass.

3. Authentic Corporate Governance:
a) Corporate ambition; this phase involves formulation the shared corporate ambition. The corporate ambition is the soul, core intention and the guiding principles of the organization and encompasses the corporate mission, vision, and core values.
b) Corporate Balanced Scorecard (CBS); the corporate ambition has no value unless you don’t take actions to make it a reality. Therefore the emphasis in this stage is developing an integrated and well balanced action plan based on the corporate ambition to realize the corporate objectives. The CBS is needed to improve the business and governance processes continuously based on the corporate ambition in order to add value to customers and satisfy them.
c) Corporate governance; the next step is to implement, maintain, and cultivate the corporate ambition and CBS in order to govern your organization effectively, to become an ethical company. This entails corporate governance: the systematic process of continuous, gradual and routine corporate improvement, steering, and learning. This stage focuses also on the implementation of formal corporate regulations, procedures and guidelines (corporate governance code). To operate in accordance with the corporate ambition and related CBS, through its implementation using the PDAC cycle, results in a journey towards sustainable and ethical business success.

4. Alignment with your organization; the emphasis here is aligning personal ambition with corporate ambition and creating uniformity of personal and organizational values. By unifying corporate ethics with individual ethics you will create a strong foundation of peace, integrity, engagement, and learning upon which creativity and growth can flourish, and life within the organization will become a more harmonious and ethical experience.  It’s about aligning personal governance with corporate governance and getting the optimal fit and balance between these two activities in order to enhance labor productivity, to create a climate of trust, and to stimulate engagement, commitment, integrity, and passion in the organization. This alignment process is needed alignmentbecause staff members don’t work with devotion or expend energy on something they do not believe in or agree with. If there is an effective match between their interests and those of the company, and if their values and the company’s values align, they will be engaged and will work with greater commitment and dedication towards realizing the company objectives (see Figure 3). When the personnel’s personal ambition is in harmony with their company’s (are compatible) and combined in the best interest of both parties, the results will be higher productivity and sustainable corporate governance. Employees are stimulated in this way to commit, act ethically and focus on those activities that create value for clients. This will create a strong foundation of peace, personal integrity, and stability upon which creativity and growth can flourish, and life within the organization will become a more harmonious experience.
fig 10.2
Figure 3: Matching the Personal Ambition with the Corporate Ambition

The effective combination of all these four phases creates a stable basis for a high performance ethical organization. To illustrate the importance of this authentic governance model: Of the 140 businesses recognized by the Ethisphere Institute as the 2013 World’s Most Ethical Companies, Aflac and Starbucks have received this honor every year between 2007 and 2013.They have been judged to not only have exemplary ethical standards and policies, but also consistently high ethical practices. Their corporate governance codes are not empty words, but represent active coordinates in maintaining an ethical business culture, based on effective values‑based leadership and the alignment of personal governance with corporate governance.

Good Governance Requires Empathy and Empathy Requires a Sustainable Culture of Diversity, Inclusion, and Belonging

Leveraging Diversity, Inclusion, and Belonging is needed for sustainable empathy, integrity, and good governance.  I refer to my article “Measuring and Creating a Sustainable Circular Innovation Culture of Diversity, Inclusion, and Belonging“.

vendia scan

In my article “How to Become a High Performance Ethical Police Force and Rebuild Public Trust Sustainably”, I discussed how to apply this authentic governance system effectively to redesign the police force in America successfully.

police

References

Alexandru, P. (2012), Failure of corporate governance – intention or negligence.

Noked, N., (2012), HLS Forum on Corporate Governance and Financial Regulation.

Rampersad, H.K (2014), Authentic Governance; Aligning Personal Governance with Corporate Governance, Springer USA, New York.

Rampersad, H.K (2008),Authentic Personal Branding:  A new blueprint for building and aligning a powerful leadership brand, Information Age Publishing, Conneticut.

Rampersad, H.K. (2013), Be The CEO Of Your Life, Global Vision Publishing House.

Rampersad, H.K. (2006), The Personal Balanced Scorecard; The Way to Individual Happiness, Personal Integrity and Organizational Effectiveness, Information Age Publishing, Conneticut.

Rampersad, H.K. (2003), Total Performance Scorecard; Redefining Management to Achieve Performance with Integrity, Butterworth-Heinemann Business Books, Elsevier Science, Massachusetts.

Dr. Hubert Rampersad is a Global Innovation Evangelist, Disruptive Futurist, Global Crusader for Sustainable Innovation and Warrior Against Racism. He  is author of “Authentic and Holistic Design Thinking for Personal, Corporate, and Social Innovation”  and also author of 25 other books on innovation, management, and bloombergentrepreneurial leadership, published in many languages. One of his books, Total Performance Scorecard, published in 20 languages was foreworded by Harvard Business School Innovation professor Dorothy Leanard. He has been featured on BusinessWeek and Bloomberg.

Miami, Florida, USA | tpsi@live.com | whatsapp: +1330315242 | skype: h.rampersad | About the author https://bit.ly/2CQLIfS

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